Foreign Direct Investment and Income Inequality Nexus in Middle-Income Countries: Exploring the Role of Research and Development Expenditure

Abstract

The study explored the role of Research and Development Expenditure in determining the linkages between foreign direct investment (FDI) and income inequality within middle-income countries. World development indicators were used as a source for panel secondary data from 1990-2023. Panel unit root analysis was employed for data stationarity. The Panel co-integration analysis using the Fully Modified Ordinary Least Square (FMOLS) technique was applied to obtain correlations among three core variables. The findings explain that co-integration exists between variables; all variables are stationary at the first difference level. The FMOLS model incorporates the impact of FDI on the income inequality index with control variables. The analysis suggests that FDI in middle-income countries may decrease income inequality. Increasing research and development expenditures can reduce income inequality by promoting innovation and reducing reliance on external funding.